The Lislevand plant has two categories of overhead: maintenance and inspection.

Question

The Lislevand plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance

$138239

Inspection

217933

The plant’s expected capacity is 75923 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job.

Direct materials

$1667

Direct labour

$4970

Machine hours

8

Number of inspections

6.5

Direct labour hours

1329

Total expected machine hours for all jobs during the year is 44489 and the total expected number of inspections is 2235.

Using activity-based costing and the appropriate cost drivers, the total cost of the potential job would be:

Select one:

a. $659

b. $5629

c. $7296

d. $12872

Maintenance

$138239

Inspection

217933

Explanation / Answer

Maintenance activity rate = 138239/44489= 3.11 Inspection activity rate = 217933/2235= 97.51 Cost of job: Direct materials 1667 Direct labour 4970 Overhead: Maintenance 25 =8*3.11 Inspection 634 =6.5*97.51 Cost of job 7296 Option C is correct

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